Along with the longest U.S. government shutdown on record, Booking Holdings' (BKNG -1.27%) sluggish first-quarter 2019 results are all but forgotten. The seasonally slow post-holiday months and temporary spending halt from the federal government eliminated growth in Q1, but travel came roaring back during the spring.
What isn't going away, though, is Booking's outlook for mid-single-digit sales expansion. The days of high-octane growth for the online travel industry are over, but it is still a growth industry. Booking remains the leader of the pack and is converting what should be average results into highly profitable returns for shareholders. Here's how they're doing it.
The first half review
After a meager 2% increase in gross travel bookings (the value of all services and accommodations booked) and a 3% decline in revenue in Q1, Booking reported a 5% and 9% increase in gross travel bookings and revenue, respectively, in the second quarter. Excluding the negative impact of foreign currency exchange rates, the two metrics grew by 10% and 14%.
|
Metric |
Q2 2019 |
Q2 2018 |
Change |
|---|---|---|---|
|
Gross travel bookings |
$25.0 billion |
$23.9 billion |
5% |
|
Revenue |
$3.85 billion |
$3.54 billion |
9% |
|
Earnings per share |
$22.44 |
$20.13 |
11% |
|
Adjusted earnings per share |
$23.59 |
$20.67 |
14% |
Data source: Booking Holdings.
Through the first half of the year, revenue is now up 3%, and adjusted earnings are up 6%. The top line is increasingly relying on merchant revenue (which is up 26% to $1.56 billion so far in 2019). Booking and its subsidiaries are promoting platforms for hotels, vacation rentals, restaurants, activity organizers, and others to list and collect payment from patrons (versus the older agency model where Booking makes a sale and takes a cut of the proceeds).
The model is paying off as competition over travel dollars spent increases from other travel sites and travel companies getting serious about their own online presence. Rather than simply trying to drive traffic to its own travel agent website, Booking is creating ecosystems that integrate directly with a travel company's online marketing and sales activity. The strategy also means Booking has many irons in the fire, including payment processing, advertising, and alternative travel services that represent the fastest-growing portions of the travel industry today.
Image source: Getty Images.
Heavy investment starting to pay off
True to its name, Booking Holdings is increasingly looking like an investment company rather than an online travel site operator. And that's OK. There are a lot of trends out there in the world of travel and accommodation, so there's no one single solution that will cover all the bases.
Adding alternative listings like homes, private rooms, and apartments to Booking.com was a big tailwind over the last couple of years, but other trends are starting to take over. At FareHarbor -- an activity booking site acquired in 2018 -- management said there are now over 100,000 activities across 280 global destinations. At OpenTable, new restaurants are still signing up for the service, which now also offers a point-of-sale system and optional delivery service routed through Caviar (soon to be part of DoorDash), GrubHub, or Uber Eats.
Also recently announced was the launch of free online travel guides through Agoda.com. The initial list had five popular destination cities in Asia, but plenty more locations are on the way. Booking.com is also adding more integrations to its app to make a more unified experience for travelers -- from car rentals to activities to places to eat. The "connected trip," as management calls it, is still early on in experimentation, but initial results show that app users are coming back more often and making more frequent purchases.
It's positive news, but the long-promised slowdown at Booking is here. The second quarter was a nice pop after the forgettable start to 2019, but the outlook for Q3 is for total gross bookings growth of 1.5% to 3.5%, revenue growth of 2% to 4%, and adjusted earnings growth of 15%. Earnings are no doubt getting the big bump as Booking continues to use cash to repurchase its own stock.
It's worth noting, though, that Booking is lapping an especially busy 2018 summer period due to World Cup-related travel, but the slower expectations are still leading to plenty of profitable return for shareholders. It isn't the high-growth company it was in the past, but Booking Holdings still offers plenty of potential in the years ahead.
